BusinessTN

Katie Edge, an attorney with Miller & Martin in Nashville, is a startup bank specialist, whose first job as a lawyer was with the state department of financial institutions in 1983 when all of the Butcher banks had started to fail.

Largest FDIC Insured De Novo Community Banks Opened in 2007
(FINANCIAL INFORMATION AS OF Q3 2007)
Largest FDIC Insured De Novo Community Banks Opened in 2007 RANK BANK BANK LOCATIONTOTAL ASSETS SOURCE: Call and thrift reports available at www.fdic.gov 1TriState Capital BankPittsburgh, PA$171.7 million 5SmartBankPigeon Forge, TN$125.4 million 7CapitalMark Bank & TrustChattanooga, TN$109.5 million 15TriSummit BankTri-Cities, TN $64.5 million

"I tell people that I helped close 35 banks in Tennessee," Edge says. "Hopefully, I'll start 35 before I need to retire. I'm getting close."

Edge's volume of business over the past few years is indicative of the high number of new community bank startups sprouting up across Tennessee. In 2007, Edge helped organize TriSummit Bank in the Tri-Cities, SmartBank in Sevier County, CapitalMark Bank & Trust in Chattanooga and Foothills Bank and Trust in Maryville. In 2006, Edge engineered First Freedom Bank in Wilson County, Reliant Bank in Brentwood, Heritage Bank & Trust in Columbia, and Commerce Union Bank in Springfield.

Edge's workflow is a valid bellwether of the current landscape for startup community banks across Tennessee. Currently, all that is pending on her "to-do" list is one new bank—CapStar Bank in Nashville. Edge concurs that there has been a recent drop off in de novo bank activity (defined as the first three years of a bank's operation). "Usually I have, since 2003, at least two or three banks—usually four—going on at the same time," Edge says. "So I think the economy is slowing down a little bit."

These days, Edge is mostly helping past startup clients do what banks do when they are growing and doing well, which includes "branching" and raising additional capital to expand. Some, Edge says, are already talking about mergers.

As an example of a maturing bank, Edge cites Commerce Union Bank, which started out with $15 million in capital, and has recently done a follow-on offering of their securities, raising an additional $15 million. "It didn't take them any time at all," she says. "And they have branched into a bigger market in Gallatin. That's going to be a great success story."

Another good example is SmartBank in Sevier County. Recent FDIC figures place SmartBank among the nation's fastest-growing (assets) de novo community banks opened in 2007—a feat accomplished despite only initially raising $20 million. (See chart.) Bank president and CEO Billy Carroll reports that the bank is actually already bigger than those third quarter FDIC figures reveal and that another capital raise and expansion to other markets is in the offing for SmartBank.

"The economy has been going strong the last several years and spurred a lot of new banks in the state," Carroll says. "But the market has changed a little bit in the last year. I've talked to several bankers across the state that were contemplating startups and then just decided to kind of sit on the sidelines for a little while."

With the current trend in community banking being less startups and more market maturation, what about those new banks in organization at the present time, particularly in Middle Tennessee? Veteran banker Richard Herrington is starting a new bank in Williamson County called Franklin Synergy Bank. Other fresh startups include Avenue Bank and CapStar Bank, both of Nashville, which due to sheer size and market are described by Edge as "bigger deal banks than the average community bank in Tennessee" and "evidence that people believe in urban community banks."

Ron Samuels, former Nashville chief of Regions Bank, is chairman and CEO of Avenue Bank, which opened its first branch in July 2007, and which raised $75 million in capital in startup capital. The bank touts itself as investing in the creative spirit of the Middle Tennessee region.

"The board of directors wanted to develop a signature bank in Nashville with capital significant enough to allow us to be a player in Nashville and in the Middle Tennessee market," Samuels says. Helping define Avenue Bank as Music City's "signature" bank are board members that include music industry giants Kix Brooks, of Brooks & Dunn; Sony BMG Nashville chairman Joe Galante; and Ken Robold, general manager of Universal Music Group. Ingram Entertainment CEO David Ingram is also on the bank's board.

The vision behind CapStar, poised to open in February 2008, is serving what organizers see as an underserved market. "Nashville is a hub for entrepreneurs," says president and CEO Claire Tucker. Organizers of the bank include Dennis Bottorff of Council Ventures, LP; Toby Wilt of TSW Investment Company; Greg Daily of iPayment; Jay Turner of Marketstreet Enterprises; and Julie D. Frist.

CapStar organizers and management put together $30 million of the initial investment, and raised another $35 million locally with people who wanted to be a part of a Nashville bank. A group of New Yorkers invested the rest, bringing the total investment capital to over $85 million.

In light of these recent startups, and their ease of raising capital, Middle Tennessee resists the label of "over-banked." And that may well be due to how it is populated—people like Samuels, Tucker and Herrington may be the key to success of their startup banks in the current banking environment.

"None of our banks have had trouble raising capital really," Edge says. "Money is the easy part. The hard part is management. My role is to say, bring me the bankers, and if they meet my test of being people with whom I can work and get a bank charter, then I'll represent you."

That's also the opinion of Robert Shaw, president and CEO of Memphis-based Paragon National Bank, which opened in 2005 and recently reached profitability on schedule. Paragon, one of two new startups in Memphis since January 2005, started with a record amount of capital raised for a de novo bank in the Memphis market.

"I view the startup of banks being more driven by opportunities in local markets than necessarily economic conditions," says Shaw, whose bank started after Union Planters and other banks sold. "We were able to bring on a very qualified experienced group of bankers."